Asymmetric Price Effects of Competition

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When price dispersion is prevalent, a relevant question is what happens to the whole distribution of equilibrium prices when the number of firms changes. Using data from the gasoline market in the Netherlands, we find, first, that markets with N competitors have price distributions that first-order stochastically dominate the price distributions in markets with N+1 firms. Second, the effect of competition is stronger for the medium to upper percentiles of the price distribution. Finally, consumer gains from competition are larger for relatively well-informed consumers. To account for these empirical patterns, we extend Varian's [1980] model by allowing for richer heterogeneity in consumer price information.
Original languageEnglish
Pages (from-to)767–803
Number of pages37
JournalJournal of Industrial Economics
Issue number4
Early online date18 Dec 2017
Publication statusPublished - Dec 2017

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